Wine Fraud

February 15, 2012

A few years ago, after having played some role in exposing the attempted sale of a substantial number of fake Ponsot wines at auction, I recounted that story, with indignation, to a friend of mine who is a senior executive at a consumer products company. Why, he asked, was I surprised that people were faking expensive bottles of wine? “They’re out there faking our toothpaste.”

Ours is a world awash in fraudulent goods, but when it involves something closer to our hearts than a Rolex watch, we feel more aggrieved. Old wine, and especially old Burgundy, has been a passion of mine for a long time, and because for many years few people were interested, one could drink great old bottles of Burgundy with a minimum of concern, even during the years when rare old Bordeaux were being routinely faked. Unfortunately, sometime around the middle of the last decade, as Burgundy prices boomed, a small cottage industry began to produce significant quantities of old-vintage fakes, beginning inevitably with older DRCs (especially large formats) and de Vogüés, then infecting Jayer, Roumier, Rousseau, Ponsot and others. The auction houses that sold wines reacted in varying ways, but while one or two had the knowledge to spot the fakes and the character to refuse them, most turned a blind eye for as long as they could. Eventually, though, the glare of publicity, and several lawsuits, turned most of the auction houses considerably more cautious.

The fake Ponsots catalyzed a glare of attention on the forgeries, and for a time there seemed to be far fewer fraudulent old Burgundies on the market—and focus, in any case, seemed diverted as new markets in Asia went wild over 1982 Lafite and other Bordeaux, and the auction houses rushed to serve this new and burgeoning market. Nonetheless, those manufacturing the fake Burgundies had never been caught, and it appears that, emboldened by the emergence of a new, rich and unsophisticated cadre of collectors, they are back in business at the same old stand.

Too often markets that lack an effective regulatory mechanism—which may be sophisticated consumers or other gatekeepers, just as much as external, or even internal, regulators—become a race to the bottom (for which the mortgage “industry” still serves as a painful example). In the wine world, the recent Spectrum/Vanquish auction in London (February 8) was the wine auction world’s sorry example of this, as the auction house put on sale a large number of seemingly rare Burgundies with what turned out to be a highly questionable provenance. After trumpeting their alleged stringent vetting of these wines, they tried their best (or worst) to ignore the well-documented warnings of outside commentators before granting some credence, albeit both grudging and only partial, to the further warnings of several Burgundy domaines and their representatives. Yet as Don Cornwell has amply documented, the withdrawn lots were only a part of a much larger whole to which adequate (or even cursory) vetting seems not to have been applied. (Full disclosure—I was one of Don’s sources for information in comparing these questionable bottles with wines of known authenticity, though it is Don who deserves full credit for the thorough investigation he performed.)

While I suspect that the reverberations from that auction may continue for some time, it also makes sense to begin asking what can be done, if not to eliminate, at least to minimize, the amount of fraudulent wine that reaches the market.

The question for the auction houses is simple: do they not have a responsibility, from a business standpoint even if not a legal one, to their customers (buyers), to take reasonable measures to assure the quality and authenticity of what they sell? Certainly, they all concur in wanting us as buyers to think they do, with their staffs of “specialists” and their vivid catalog descriptions of long hours examining dusty bottles. Yet with few exceptions, this remains more in the realm of puffing than of actuality. What will change this? As are others, I am skeptical of the government’s ability to impose such responsibilities other than in the most ham-handed of fashions. On the other hand, self-regulation would require that the leading auction houses abide by uniform standards, which they seem reluctant to do for a variety of reasons. Nevertheless, the issue is not going to go away, and the auction houses need to face up to it. While I don’t profess to have a neat set of answers, I would, in the interests of starting a dialogue, proffer a few observations and suggestions:

–wine fraud is never going to be totally eradicated. There’s just too much money in it, and those who think this is just a rich man’s game are dreaming; there’s plenty of it going on at more affordable levels. Nonetheless, the auction houses should provide a relatively safe zone for the trade in mature wines, not a wild-west atmosphere.

–the art market may provide some useful analogies. That market is still largely self-regulated. It is certainly not a perfect market, and fraud is still a serious issue. At least, however, it is an issue that is taken seriously. In the auction process provenance is typically carefully scrutinized, and not only do the auction houses and dealers take their vetting processes seriously, but a substantial role is played by outside experts who do not have an economic interest in the sale. For major artists, these third party experts are effectively gatekeepers, and the absence of a third party imprimatur can be an obvious signal to reasonably sophisticated buyers that there is likely to be a problem.

–while the wine auction business has largely paid lip service to the expertising process (though a couple of houses actually do take it seriously), the truth is the wine departments have had a lot of merchandise to move and a small number of underpaid and undertrained specialists, and have often failed to pay the attention to authentication needed to do the job correctly. At the same time, many of the consumers who have been spending large amounts at auction have had neither the time nor the detailed knowledge to do any serious due diligence–a lot of money was and is being freely spent by people who quite frankly are not sophisticated about what they’re buying. This relative lack of gatekeepers, or the demand for them, was what in my view opened the door for those who saw an opportunity to produce fraudulent bottles, and who really didn’t need to be too fastidious about the quality of the fakes they were producing.

–what can be done? If the auction houses truly want to get serious about this issue, then at a minimum, they need to hire a truly independent (and experienced) third party to vet the expensive/questionable bottles. Because of its widespread use in the art world, the idea of independent expert review will certainly not be a novelty to the large auction houses and if it became the norm there would be a viable business for a few different experts to do this for multiple auction houses and collectors. For it to work properly, however, there would need to be far greater cooperation from the producers. One of the difficult parts of the exercise in reviewing the Spectrum bottles was identifying reference standard labels, bottles, etc. Building a reliable database of information is going to be key to any such effort. The Domaines can be a huge help in this, and I think (hope) they would be more willing to do so, if the information were being given to third parties of known reliability. I would certainly hope, for example, that those campaigning for recognition of Burgundy as a world heritage site would not be short-sighted about the importance of preserving that heritage once its fruits are bottled and move out into the world.

–what is the appropriate standard of “authenticity”? There was a good deal of discussion on wineberserkers.com (where Don Cornwell first exposed the problems with the Spectrum/Vanquish auction) about whether DRC itself should “authenticate” wines, much of it unfortunately proceeding from the unstated, but incorrect, premise that this is something DRC could readily do if only it were willing to devote the resources to the task. While a number of Burgundy producers are at work on technologies that in the future may serve to prove whether a bottle is or is not what it purports to be, those experiments belong to this century. For older bottles, while an expert who examines a bottle should be able to tell if there are signs that it may not be what it purports to be, there are no comparable signs which would allow one to state with certainty that a bottle is “authentic.” Indeed, until relatively recently, few Burgundy producers had to concern themselves with fraudulent bottles (DRC was not even a profitable enterprise until sometime in the 1960s), which meant they were mostly concerned with how they would sell their production, not whether someone would be motivated to counterfeit it. Also, labeling practices in Burgundy were not always uniform, as wines might not be sold until years after the vintage, when new labels might be printed—although the existence of legitimate variations does not mean that all variations are legitimate. Other than branding corks, which only a few producers did at that time, no significant steps were taken to deter counterfeiting. But corks can be falsely branded, false labels can be printed (and made to look old), and of course corks, labels, capsules and bottles can all be pulled out of the dumpster and reused. As just one example, I have tasted a bottle of 1945 Rousseau Chambertin (so it said on the label), with a correct period bottle, capsule, label and even a branded cork—only what was in the bottle was not ’45 and not Chambertin. Of course, the best way to positively authenticate a bottle, without consuming it, is to have a clear record of its provenance. However, to ask a domaine, or outside expert, to say by examining the exterior of an old bottle of unknown provenance that what is inside is “authentic” is to ask them to do something beyond their capability. For this reason, what some auction houses have established as the operative criterion is not whether the bottles are authentic but whether they are sellable at auction. The key distinction is that one only has to establish that the bottle lacks adequate provenance, or presents issues of authenticity, to exclude it.

–The vetting process will not be foolproof, and liability issues for the experts need to be considered carefully. Two other problems are time—auction houses and collectors are going to have to adjust to longer lead times–and over-exclusion: i.e., the vetting process is by its nature going to require setting aside as unsellable not just obvious fakes, but also bottles whose provenance is murky, or that have questionable variations, but that may nonetheless be authentic and provide great drinking experiences.

–This problemof potential over-exclusion suggests that there may be a better way to look at this issue. Sotheby’s may currently do the best job of vetting its wine sales, but does anyone else share my view that these sales tend to be rather boring, especially for those whose interests in Burgundy extend beyond recent vintages of DRC and a handful of others? Once the obvious fakes are excluded, I think there still needs to be a “safe” market for those bottles that are neither of impeccable provenance, nor counterfeit—it just has to be a market in which they find their own level, and are not (as now) marketed and priced as if they had lain in some cold country house cellar since release. The possible model for achieving this is very different from the one the auction houses currently employ, and one that takes its cue from the securities industry: full disclosure of all material facts that would affect a reasonable buyer’s decision. Presumably, if everything relevant about provenance, condition and storage, is disclosed, then informed buyers can make their own decisions, and bottles will find different price levels depending on the perceived risk. This approach was used to some extent years ago by Chicago Wine Company, in its “caveat emptor” section—mostly bottles with severe ullage, or potential seepage, etc. but there’s no reason not to extend this to wines that, for example, have traded multiple times, or that seem correct but lack information on where they’ve been. Let those bottles find their own price level, based on honest reporting—the auction house has to say what it knows, after reasonable due diligence, and what it can’t find out (for example if sellers don’t have, or won’t produce, any records of purchase, that would be disclosed). It must be clear, though, that this is not just a variant of willful blindness. What should raise red (if not black) flags, is a complete lack of any information on the provenance of rare and expensive bottles. The silence of Spectrum/Vanquish on this point had to be disturbing to anyone concerned about authenticity—evidently including DRC among others. Real due diligence has to be a cornerstone of this approach, and I would advocate this be overseen by truly independent third parties, as a part of the expert review process outlined above, and not by in-house personnel whose compensation, or indeed continued employment, may be conditioned on their pliability. Nor should the auction houses be able to rely on “captive” third parties, whose retention similarly may depend on telling the auction house what it wants to hear.

–If the auction houses (or some of them) were willing to adopt this approach, then while certain sellers would for obvious reasons flee into the shadows, it could have several positives (beyond simply being the right and honest thing to do). First, I think it would provide a competitive advantage in terms of dealing with buyers, because buyers would presumably prefer to deal with a source they could trust (indeed, it might help bring to the auction market the large number of collectors who today regard the auction houses as a place to dump their trash, not as a source they would seriously consider buying from). Second, it would obviate the liability issues that are sure to be coming the way of auction houses that persist in dealing with fraudulent goods even when warned; and third, it might obviate the perception of a need to impose liability on all the auction houses through new laws and regulations.

— There will be several challenges for the auction houses in adopting such an approach. The first is the often chaotic nature of the auction process for wine, where large amounts of wine may arrive last minute, and all have to be appropriately examined for identification of the wine, label conditions, capsule conditions, etc. Slowing down the process while an expert chews over the most desirable bottles is not going to be appealing to the auction houses, but in fact right now some auction houses are doing this, and it doesn’t seem to measurably affect their ability to bring quality consignments to auction. Second, there is a risk of overkill in that small consignments of wines with no known counterfeit issues should not need to be subjected to the same depth of examination as large consignments of Lafite, DRC, etc. The biggest issue for the auction houses will likely be that of naming sellers, and others in the chain of title. While I would point out that even now, if you’re a big enough customer, the auction houses will quietly tell you who the seller is, there is concededly a big difference between that and publication, and it is one that clearly would hurt their ability to attract consignors. Nor is this just about questionable consignors not wanting to be identified; I have known plenty of people with great collections who would have balked if they thought that their moment of financial distress would become obvious to the world. However, this may not be as large a problem as it seems. On one side of the equation, some major consignors already understand the utility of attaching their names to their collections, and on the other, the number of bad actors whose names are widely recognized in the collector community is actually fairly small. So something would have to be worked out so that more information about consignors and others in the chain would be available in enough detail for it to be obvious when a bad actor was in the chain, but without clearly identifying individuals who have a reasonable expectation of privacy; nonetheless this seems like something that, once again, could adequately be controlled by a third party gatekeeper.

To summarize, I think that a system can be worked out to prevent most frauds, without legislative intervention—provided a critical mass of auction houses would be willing to do so. If I’m right, then given their current reluctance to step up, what may be needed is a little “gentle” encouragement from us, their customers—by making our preferences known in the way they will best understand, through our patronage of those who will stand up and do the right thing, and refusal to do business with those who won’t.

Advertisements

Like this:

LikeLoading...

Related

Douglas, excellent piece on the shortcomings of the auction process. I particularly liked the analogies to the securities industry. This will create a strong and transparent market for wine other than those of proven blue chip provenance and likely offer some value for those willing to take some risk.